Chapter 5

Question 1

internal environment factors

Answer 1

-people
-resources
-business
-business models
-corporate culture

Question 2

the three business resources

Answer 2

-natural resources
-labor resources
-capital resources

Question 3

the five business locations

Answer 3

-shopping centers
-retail shopping strips
-home-based
-online
-industrial estates

Question 4

factors that affect the location decision

Answer 4

-visibility
-foot-trafficking
-proximity to customers, suppliers and competitors
-space requirements
-cost/budget requirments

Question 5

5 factors affecting the finance decision

Answer 5

-business structure
-overall cost
-flexibility
-level of control
-terms of finance

Question 6

what are the two sources of business funds/finance

Answer 6

internal source of funds
external source of funds

Question 7

equity

Answer 7

a owner uses his own money to fund the business (internal)

Question 8

benefits and limitations of equity

Answer 8

benefits:
no risk of debt
no terms set by banks on how to repay money
limitations:
may not work and can lose money

Question 9

benefits and limitations of debt

Answer 9

benefits:
expand your business
banks advise you
limitations:
not flexible
high cost
interest

Question 10

short term and long term borrowing examples

Answer 10

short term:
bank overdraft
bank bills
trade credit
long term:
mortgage
leasing

Question 11

benefits and limitations of short term debt

Answer 11

benefits:
money instantly
minimal interest
no long documentation process’
limitations:
wont get a lot of money
banks might not give you money
can charge high interest

Question 12

benefits and limitations of long term debt

Answer 12

benefits:
can take more money
less interest
limitations:
long term commitment

Question 13

pros of buying an existing business

Answer 13

• created a place in the market
• has name and reputation attached to it
  -own any employees and equipment in he business
  -inherit existing cash flow and systems to sustain it

Question 14

cons of buying an existing business

Answer 14

-buying business for 3 times its cash flow
-business built on reputation of previous owner
-business system may have major weakness
-employees may have bad habits

Question 15

starting a new business pros

Answer 15

• do whatever you want
  -can start small
  -can run business part time
  -can establish any business process

Question 16

starting a business cons

Answer 16

-no existing business process
-requires lots of energy
-knowing what to do to reach goals may be difficult
-many start-ups do not see a profit for the first few years
-owner typically does everything

Question 17

what must a buyer do prior to buying an existing business

Answer 17

perform due diligence- a thorough appraisal of a business to establish its assets and liabilities and evaluate its commercial potential.

Question 18

factors affecting the start-up decision

Answer 18

-type of good or service
-availability of start-up capital
-level of competition in market
-gap in the market
-viable purchase options

Question 19

unlimited liability

Answer 19

full liability of owner (if their business fails) to the extent that their personal assets could be
seized to pay debts